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Gold drops as US dollar rises in expectation of US rate hike

Gold prices fell on Thursday as the US dollar strengthened on growing expectations of a Federal Reserve rate hike in December following positive US economic data.

ST PHOTO: KEVIN LIM

[BENGALURU] Gold prices fell on Thursday as the US dollar strengthened on growing expectations of a Federal Reserve rate hike in December following positive US economic data.

Spot gold was down 0.2 per cent at US$1,185.43 an ounce by 0245 GMT. It dropped 2 per cent in the previous session to touch its lowest in 9-1/2 months at US$1,181.45.

US gold futures eased 0.4 per cent to US$1,184.60 per ounce.

Fed policymakers appeared confident on the eve of the US presidential election that the economy was strengthening enough to warrant interest rate increases soon, minutes from the Fed's Nov 1-2 meeting showed.

Market voices on:

"There is a downtrend for gold prices due to interest rate hike expectations," said Mark To, head of research at Hong Kong's Wing Fung Financial Group. He added that he saw a "100 per cent" chance of a rate increase in December.

"Some of the largest... investment figures have been winding down their long positions in gold in the past quarter. We are going to see many more followers. It is not a good idea to trade for a rebound in prices," Mr To said.

New orders for US manufactured capital goods rebounded in October, driven by rising demand for machinery and a range of other equipment, the latest indication of an acceleration in economic growth early in the fourth quarter.

Recent positive economic data has been pressuring gold prices as investors raise bets on a US interest rate hike that would increase the opportunity cost of holding non-yielding bullion, while boosting the US dollar.

Investors are now pricing in a nearly 100 per cent probability of a December Fed rate increase, according to CME FedWatch, and some investors expect more hikes in 2017 if economic momentum is sustained.

The US dollar index, which measures the greenback against a basket of currencies, was on Thursday near its highest in 14 years, a level that it touched overnight.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 1.47 per cent to 891.57 tonnes on Wednesday from Tuesday.

"Gold demand from this quarter has increased post-US election in Europe. The opposite has occurred in the US, where investors have liquidated gold," HSBC analyst James Steel wrote in a note.

"This reflects different analyses of the election. The Trump reflation trade is most prominent in the US and reflects optimism concerning the economy. This is gold-bearish."

The Thanksgiving Day holiday in the US on Thursday may give gold a chance to stabilize, Mr Steel noted.

Spot silver fell 0.6 per cent to US$16.28 an ounce. Platinum dropped over one per cent to US$919, while palladium eased 0.6 per cent to US$728.50.